How much profit is there is Hi-Res?

[tailspn]

What's the educated estimate here of the daily world-wide volume of a hi-res content site? Not including any 44.1 and mp3 content.

 

What volume at current pricing would be needed to break even financially?

[alfe]

Why high-resolution audio is an industry pipe-dream | TechHive

[Allan F]

Why high-resolution audio is an industry pipe-dream | TechHive

 

And your point is, alfe? So, here is an opinion which can best be summed up by its conclusion..."but sometimes good enough is, well, good enough."

 

For many in this hobby, especially among members of this forum, the quest is for the best sound quality possible. For those, "good enough" has a very small role to play. I must say that I simply don't understand why those who don't believe hi res offers sonic benefits seem to delight in every negative article published about it.

[sandyk]

Why high-resolution audio is an industry pipe-dream | TechHive

 

Hi Alfe

The problem here is lack of education.

Marry a good 2160P (4K) display with suitable video content, and real high resolution audio through a better than average system , and most people would be gobsmacked. Even well recorded 2160P material looks way better through a decent display when down converted to 1080p than when recorded at 1080. This is not just my opinion either, and material originally recorded for HDTV usually looks better than normal SDTV through a decent display despite down conversion for SDTV.

Surprisingly, the quality of audio from the major networks with some Soapies, and especially 5.1 channel audio with live music performances from the Late Night shows, can be very good indeed, even when played in stereo.

I just wish that our local TV networks would rebroadcast them in their original format.

Regards

Alex

[sdolezalek]

Alex: I have to agree with you that the system provides the context. Much as I would like to say that I can hear the differences between hi-res and 16/44 clearly on my ~$1,000 desktop music system, I cannot. But I can hear those differences on my much more expensive home theater and listening room system. Having heard them, it is hard to go back and be satisfied with something less.

 

But, if I'm listening to music while I work, then even Pandora/Spotify is often good enough. Although I can generally hear the difference between Pandora/Spotify and Tidal on my desktop system, that difference just isn't large enough to overcome the ease of use convenience of the other programs. In fact, I tried using the highly resolving and very good Magnepan Mini desktop system for a while (and with it I could hear the differences), but too often I found myself paying attention to the music rather than doing my work, so I went back to the lower fidelity system (which is far less involving and thus better as mere background).

 

By contrast, on my main listening system I have run comparisons between the ClassicsHD streaming service (which is actually quite good) and the same HD music downloaded and played at 24/192 and the differences are sufficiently clear that I make the choice of download over streaming whenever I really like a particular recording.

 

It will be very interesting to see whether the better streaming services actually increase the volume of high resolution downloads. I think they might, but the truth may simply be that not enough systems provide a clear listening differential.

 

It will be very interesting to see whether the average consumer makes that same choice with 1080p vs 4K televisions. If you are watching a 32 inch flatscreen, the answer may be "who cares." On a calibrated 70-inch OLED the answer is more likely to be "Holy cow, I can never go back..."

[christopher3393]

What's the educated estimate here of the daily world-wide volume of a hi-res content site? Not including any 44.1 and mp3 content.

 

What volume at current pricing would be needed to break even financially?

 

Great question. Personally, I don't have a clue and would very much like to know.

[tailspn]

Well, all I can say is it's all over the map.

 

The reason I ask the question is there seems to be strong consensus on what a high-res download should cost the buyer, ie, what's the fair value. So I'm asking, what do people think is a fair in-line cost to the seller. Obviously, no one is going to sell long term at a loss. If we're educated consumers, we should have an idea of what's fair for both parties.

 

I'll give some hints:

 

There are fixed costs like site creation and maintenance, server storage fees, upload fees, and file prep costs. Someone(s) has to convert and tag the files as they're delivered from the distributor or label and prepare the album page. Additionally, there's overhead and salaries.

 

Then there's variable costs/expenses. On average, the content owner receives 60%, and for every download sold, there's a server download fee. Also there's a customer support cost, unless one chooses to ignore them

 

And there's numerous other fees and expenses for services, but you get the idea.

 

So, it really comes down to volume to cover the fixed costs. The variable costs have a built-in profit.

 

What do we think? Lots of biz people here, how many $25 sales will it take a day to cover the fixed costs at a minimum?

[sdolezalek]

There are fixed costs like site creation and maintenance, server storage fees, upload fees, and file prep costs. Someone(s) has to convert and tag the files as they're delivered from the distributor or label and prepare the album page. Additionally, there's overhead and salaries.

 

So, it really comes down to volume to cover the fixed costs. The variable costs have a built-in profit.

 

What do we think? Lots of biz people here, how many $25 sales will it take a day to cover the fixed costs at a minimum?

 

I think the error we make is that we assume there are lots of others just like us. I was extremely surprised, when I subscribed to the Classics online streaming service that many of the albums I was listening to had listener counts of 5 or 10 or 15, not the hundreds or thousands I might have thought. There were also rumors here that Tidal had some 15,000 customers. If these numbers are really that small, then it is not surprising that fixed costs would drive the cost of hi-res downloads to where they are.

 

I guess that means we all need to go out and recruit other converts to the Hi-Res lifestyle! :-)

[Jay-dub]

Eclassical seems to number its orders consecutively, so by looking at my order history I find that they had 66709 orders in the year ending March 17. That's a hard number. Now converting that into dollars of hi-res takes some guessing. I would figure, based partly on my own purchasing habits, that the average order is 1.5 albums, and the breakdown by format is 40% 16-bit (or MP3, which is usually the same price on that site), 30% 24/44.1 or 24/48, and 30% 88.2kHz or higher. That would make roughly 30000 albums of high-sample-rate high-resolution material sold in a year from that site. Then you have to estimate the global market share of Eclassical in high-res classical music downloads (maybe 20-25%? Less than Qobuz, probably, but more than HDTracks, which seems to get more attention for hi-res remasters of classic rock and jazz albums. The other sites would have a much lower percentage of 24/44.1 albums) and the fraction of the hi-res download market that is classical music (surely much higher than for lossy or streaming, maybe as high as 25-35%).

 

With these numbers, my guess for the global download volume in 24/88.2 or better is

150,000 albums (classical)

600,000 albums (total)

at an average price of $10-15

 

Of course, these could easily be off by a factor of two or more.

[alfe]

Hi Alfe

The problem here is lack of education.

Marry a good 2160P (4K) display with suitable video content, and real high resolution audio through a better than average system , and most people would be gobsmacked. Even well recorded 2160P material looks way better through a decent display when down converted to 1080p than when recorded at 1080. This is not just my opinion either, and material originally recorded for HDTV usually looks better than normal SDTV through a decent display despite down conversion for SDTV.

Surprisingly, the quality of audio from the major networks with some Soapies, and especially 5.1 channel audio with live music performances from the Late Night shows, can be very good indeed, even when played in stereo.

I just wish that our local TV networks would rebroadcast them in their original format.

Regards

Alex

 

Alex,

I was involved in hi-res before it hits the market and at that time we were sure that everyone will adopt it, guess what happen the mass market adopted MP3, this link is just to remind that we are talking about a niche market which will be dropped by the music industry (no money to make).

I'm not trying to be negative to hi-res like Allan is thinking but just crossing my finger that we can keep what we have in a bright future of streaming where MP3 will be the king.

[firedog]

mp3 is already the king and has been. Hi-res exists (in all it's formats) because it is an additional income stream. Just b/c something is a niche market, it doesn't mean there isn't money to be made - just not billions.

 

Almost everything in hi-end audio is a niche market. People still make money at it. As long as the companies don't lose money on hi-res, there is no reason for them not to keep selling it.

[Audio_ELF]

mp3 is already the king and has been. Hi-res exists (in all it's formats) because it is an additional income stream. Just b/c something is a niche market, it doesn't mean there isn't money to be made - just not billions.

The question is... Would there be more money made if we were talking a quid or two increase in cost over the MP3/AAC download rather than the 2-3fold increase there is currently.

 

I think we have moved on from the original question/debate which was where is the "extra" profit going when you spend £25 on a HD download vs £10 on a CD or £8 on a MP3 download.

[Jud]

The question is... Would there be more money made if we were talking a quid or two increase in cost over the MP3/AAC download rather than the 2-3fold increase there is currently.

 

I think we have moved on from the original question/debate which was where is the "extra" profit going when you spend £25 on a HD download vs £10 on a CD or £8 on a MP3 download.

 

Eloise, it's looking like US prices are somewhere between half and two thirds of those in the UK. Fewer customers to spread over a fixed cost base, higher distribution network costs...?

[tailspn]

The question is... Would there be more money made if we were talking a quid or two increase in cost over the MP3/AAC download rather than the 2-3fold increase there is currently.

 

That's a great question, especially if the "high-res" offerings are an incremental part of the existing business. There, the fixed costs are already absorbed by their mainstream business segment. But what about the specialty sites, focused only on high-res content? Further, those that specialize in just one or two genre?

 

Is there a great enough interest in these sites specialty to support their fixed costs?

 

I characterize download sites into two categories, supermarkets, and boutique.

 

The supermarket sites are just like the old brick and mortar record stores, operated exactly the same way. They sell everything available. They're supplied by distributors like Naxos and FUGA via ftp, and aside from the preparation of an album page, provide no value added to the distributed music content. They're volume based one-stop shopping, and appeal to the customer seeking a broad selection of music with a minimum of fuss. Just like the Tower Records of old.

 

Boutique high-res sites are quite different. First, their supply relationships are more from the labels themselves, rather than distribution, and they value add to the content. Many/most labels have only edited masters available of their catalog, in addition to their further processed cutting masters. Edited masters require additional work in slicing into tracks, metadata tagging, and conversion into the deliverable formats over and above the edited master format. Many of these sites also supply spectrographs of the content proving their pedigree. Some sites also provide exclusive content of in-house re-mastered analog transfers which they licensed.

 

All this costs money, and that must be paid out of a much lower volume compared to a download supermarket.

 

So Jay-dub provided an excellent analysis of eClassical as a data point. eClassical is a perfect example of a supermarket download retailer, with a genre focus. My guess is it's on a par, or somewhat below the volume of HD Tracks, and way below the world volume leader Qobus. All of them are light years ahead in volume to a boutique download site.

 

Thoughts?

[Audio_ELF]

Eloise, it's looking like US prices are somewhere between half and two thirds of those in the UK. Fewer customers to spread over a fixed cost base, higher distribution network costs...?

Those prices were ball part figures and you have to take into account that our prices include VAT where as (I believe) in USA there are local taxes when buying in a store? It really is often cheaper to buy a CD than pay for a download from iTunes or Amazon though.

 

But yes prices are generally higher in UK.

[Audio_ELF]

That's a great question, especially if the "high-res" offerings are an incremental part of the existing business. There, the fixed costs are already absorbed by their mainstream business segment. But what about the specialty sites, focused only on high-res content? Further, those that specialize in just one or two genre?

 

[...snip...]

 

Thoughts?

There are many boutique high street stores (in UK) which manage to keep their prices broadly in line with the volume resellers.

[firedog]

tailspn:

So Jay-dub provided an excellent analysis of eClassical as a data point. eClassical is a perfect example of a supermarket download retailer, with a genre focus. My guess is it's on a par, or somewhat below the volume of HD Tracks, and way below the world volume leader Qobus. All of them are light years ahead in volume to a boutique download site.

 

This is technically true, but I think it would be more accurate to call eClassical the BIS e-store, and they also sell a few other even smaller classical labels.

 

One of the great things about eClassical is the pricing method, which is track and minute based. They are also more generous in other ways with some pro customer policies and customer service. So they are very different in this way to the other supermarket sites. Obviously they have an advantage here in that they are selling mostly their own recordings, so they have the right to offer them anyway they want. That makes them more like a boutique site.

 

As far as pricing, it's an interesting economic question whether the sites would sell enough in volume to make up for lower prices for hires. We won't know unless someone tries.

 

In any case, they seem to have found that sales help them, as PSM, HDT, eClassical, and Qobuz offer frequent sales. If you are a good customer you are pretty much weekly or bi-weekly given a discount code of 10-20% from PSM and HDT. So you can buy just about all your downloads on sale with a bit of patience.

 

Lately I've gotten the discount emails from PSM and HDT promoting the same albums, on the same day, about an hour apart. So I think they are monitoring/competing with each other pretty directly in this area. I'd say this means they've found that these discount codes are a good way to coax additional sales from customers who've bought from them in the past, and they are both making money doing it. Additionally they don't lose these sales to the competition this way.

[sdolezalek]

In any case, they seem to have found that sales help them, as PSM, HDT, eClassical, and Qobuz offer frequent sales. If you are a good customer you are pretty much weekly or bi-weekly given a discount code of 10-20% from PSM and HDT. So you can buy just about all your downloads on sale with a bit of patience.

 

I completely agree. I would also assume that the regularity of the 10-20% discount implies that there is still some profit at those levels (even with current sales volumes) and that only when you get to 30-40% discounts are they actually near the break-even level.

 

But, I think tailspn's original question regarding how much volume is needed to cover fixed costs is very much on the right track. For those who already have a 16/44 download site and have just added a hi-res option (the "supermarkets"), offering higher discount levels should be very possible. For the hi-res only boutiques, this could really squeeze them. Perhaps that is why you see HDTracks adding lots of other downloads to the catalog (moving them to the supermarket category). It gets trickier for sites like NativeDSD (which I love and would like to see survive and thrive) as they remain in that boutique category.

[Musicophile]

I'm personally still interested in another aspect of the original question: where does the premium go? Is it all absorbed by retailer and label, or does the artist actually make more money on a $20 highres than on a $10 redbook?

[tailspn]

This is technically true, but I think it would be more accurate to call eClassical the BIS e-store, and they also sell a few other even smaller classical labels.

 

 

A few others? Try 810 other labels! eClassical is the quintessential supermarket download site, fed by distribution, except for their own BIS recordings. The reason you receive mails from the other supermarkets on the same day/hour is they all receive the same distributor ftp feeds.

 

Robert von Barr has done an excellent job of managing the purchase of a failing download site, integrating his label's products, and growing eClassical into a very successful high volume download business. But please don't confuse eClassical with a boutique, with the possible exception of it being mostly one genre. eClassical is a giant in this biz.

[tailspn]

I'm personally still interested in another aspect of the original question: where does the premium go? Is it all absorbed by retailer and label, or does the artist actually make more money on a $20 highres than on a $10 redbook?

 

 

The label typically receives 60% of the net selling price, and they are responsible for paying the artist, as well as the mechanicals. The download site pays all the rest of the costs. So the real question is, in your opinion, how much does a download site have to sell to cover those costs, and if covered, how much can/should be applied to discounts?

[Paul R]

The label typically receives 60% of the net selling price, and they are responsible for paying the artist, as well as the mechanicals. The download site pays all the rest of the costs. So the real question is, in your opinion, how much does a download site have to sell to cover those costs, and if covered, how much can/should be applied to discounts?

 

Well, I just did a site plan that would fit this bill. If I cut all the corners on it, the absolute nut comes out to be $9740/month with two employees. That covers storage, network, and redundancy (i.e. DR) as well as operations costs.

 

Or at $17.99 - about 560 sales per month. Not that terrifically difficult to do. 1000 sales per month would give enough income to support a little more polished operation and pay for the coffee too. Of course, that excludes start-up or one-time costs, like designing the web site, setup fees to a CC processor, and so on.

 

Understand, this is a shoestring budget, with cheap office space and running everything off Linux PCs. Not a great long term strategy.

 

-Paul

[Musicophile]

The label typically receives 60% of the net selling price, and they are responsible for paying the artist, as well as the mechanicals. The download site pays all the rest of the costs. So the real question is, in your opinion, how much does a download site have to sell to cover those costs, and if covered, how much can/should be applied to discounts?

Thanks. So does the artist typically get a fixed fee per album sold, independent of format, or a % of sales?

[Musicophile]

Well, I just did a site plan that would fit this bill. If I cut all the corners on it, the absolute nut comes out to be $9740/month with two e

 

Understand, this is a shoestring budget, with cheap office space and running everything off Linux PCs. Not a great long term strategy.

 

-Paul

My guess is this is pretty much what a smaller local store like the German Highresaudio looks like.

[Paul R]

My guess is this is pretty much what a smaller local store like the German Highresaudio looks like.

 

Yep, but I was not clear. That figure was on top of what one owes to the labels as royalty though. They would need to make 1,360 sales or so at $17.99 to meet the nut cost of $9740 per month + the royalty payment to the label. (Gross sales of ~$24,500)

 

-Paul

 

 

In terms of actual physical sales,